Guidant says it will take new J&J bid

Offer trumps Boston Scientific's plans for heart business

RussBritt

LOS ANGELES (MarketWatch) -- A last-minute bid from Johnson & Johnson trumped Boston Scientific Corp.'s plan to take control of Guidant Corp., as J&J offered $24.2 billion for the heart-device maker late Friday.

J&J and Guidant jointly announced that Guidant would accept a new bid of $71 a share for the company. For each Guidant share, J&J is offering $40.52 a share in cash and 0.493 shares of J&J stock.

J&J raised its offer from $68 a share, made earlier this week, in the face of a deadline imposed by Boston Scientific.

For its part, Boston Scientific -- which had upped its bid from $72 to $73 a share for the company late Thursday -- asked Guidant to respond to its offer by 4 p.m. Eastern time. It was the second time this week Guidant's board of directors rejected a Boston Scientific bid in favor of its original suitor, J&J.

Though lower in monetary value, J&J's bid came much closer to Boston Scientific's than its earlier offer this week. Guidant prefers to merge with J&J since there are fewer antitrust questions with such a union, and J&J plans to keep most of Guidant's units intact. Boston Scientific has said that it will sell off Guidant's stent business.

"Together with Johnson & Johnson, we will have the resources to continue to build upon the existing Guidant businesses in our pursuit of meaningful innovations to address cardiovascular disease," Chief Executive James Cornelius said in a statement.

Shares of Guidant
GDT
were up more than half a percentage point at the close, as were Boston Scientific
BSX, +0.76%
shares. But Johnson & Johnson
JNJ, +0.99%
was down by an equivalent percentage.

Deal background

With its offer of $73 a share, Natick, Mass.-based Boston Scientific remains roughly $600 million above that of J&J. Guidant faces a $675 million breakup fee if it terminates its arrangement with J&J.

Boston Scientific had tried to allay Guidant fears that its bid would not pass antitrust muster, vowing to divest all overlapping business deemed a conflict by regulators.

In addition, if the transaction couldn't be completed by March 31, Boston Scientific pledged to pay up to an additional 1.2 cents a share in cash for each day that it was delayed.

Some analysts were in favor of the J&J-Guidant merger, due to its certainty.

"Obviously, the Guidant board favors the certainty associated with J&J's offer," said Keay Nakae of C.E. Unterberg Towbin. "They've basically gotten the FTC to sign off with J&J. They just need shareholder approval."

"Guidant's been in limbo for almost a year. There's value in just moving on," the analyst added.

Nevertheless, some industry watchers thought that Boston Scientific's bid was based on contacts with Guidant executives, leading them to believe that bid would prevail.

"We suspect the new Boston Scientific offer was developed with input from the Guidant board, so it's likely that the Guidant board will declare it superior to J&J's latest offer," Prudential analyst Larry Biegelsen wrote in a research note early Friday.

J&J's offer may not be enough to appease shareholders who had called for Guidant to accept the Boston Scientific bid.

One Guidant shareholder, a fund entity called Elliott Associates, said in a statement late Thursday that it would vote against the revised J&J offer and encouraged other shareholders to contact Guidant's board and air their views.

At least one other shareholder, Deephaven Capital Group, urged that Guidant take the higher bid.

Prior to Friday's developments, several analysts said Boston Scientific could go to $76 or $78 a share, if needed, to get Guidant.

"We believe that Boston Scientific can raise its offer to $78 a share and still maintain an investment-grade credit rating," Biegelsen said earlier this week.

J&J plans to discuss the offer at its Jan. 24 analyst meeting, and Guidant said that it will recommend the new bid at its Jan. 31 shareholder gathering.

New Brunswick, N.J.-based J&J's original bid for Guidant was announced in December 2004. The company cut its offer in mid-November to $63.08 a share from $76 to reflect what it said were ongoing concerns about Guidant's financial outlook.

Since Johnson & Johnson's first bid last winter, Guidant has been plagued by several high-profile recalls of its pacemakers and defibrillators.

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